What Multifamily Housing Investors Need to Know About Reform

The Difference Between Multifamily and Single-Family Sectors

Experts and analysts are urging the government to consider the differences between single-family and multifamily sectors as they build the reforms that will control the housing market for the foreseeable future. Multifamily investors have an extraordinarily low rate of either delinquency or default, even throughout the housing crash and especially through the Fannie Mae system. The multifamily sector consists of financially knowledgeable individuals that simply do not need the protections that the single-family sector require. Furthermore, it’s simply more difficult for a multifamily loan product to fail due to the revenue opportunities present.

A Matter of Knowledge and Backing

Many single-family homeowners struggled throughout the housing crash because they truly were not aware of the financial hardship they were signing up for. Reform is required to protect these home buyers from purchasing homes that they cannot truly afford. However, multifamily investors are extremely aware of their own financial position. Historically, these investors rarely overextend themselves. Multifamily investors also have the financial backing necessary to weather difficult times, which is something that challenged many homeowners during the economic crash.

How Reform Affects the Multifamily Housing Sector

A significant amount of the housing market reforms being discussed essentially involve the placing of barriers between those that want to purchase property and the actual purchase of the property. Consumer protections are intended to be placed, affordable housing is intended to be supported on a government level and, more critically, the role of Fannie Mae and Freddie Mac is intended to be diminished if not destroyed completely. Unfortunately, the latter could be a huge blow for the multifamily housing sector.

Saying Goodbye to Fannie Mae and Freddie Mac

One of the major talking points regarding housing market reform is based around the central conceit that Fannie Mae and Freddie Mac contributed directly to the crash of the housing market through their lending and investment practices. The current administration has stated an interest in abolishing the system entirely and replacing it with private sector products. Many multifamily investors fund their investments through Fannie Mae, making this a huge blow to investors everywhere. As noted, very few of these investors defaulted even at the peak of the housing market crisis. Fannie Mae and Freddie Mac are both government-funded entities, but they provide an essential tool for investors and keep both the economy and the real estate market strong. Without the aid of Fannie Mae, many investors may find it more difficult to acquire funding.

Ultimately, the multifamily housing sector is not calling out for reform the way the single-family housing market is. The single-family housing market entrusts the average person with the ability to make incredibly large financial decisions, and thus the average person needs protection from predatory practices and the potential for astronomical missteps. The average investor, however, is knowledgeable enough that reform would only provide barriers to success. Reforming the multifamily housing sector could even lead to stagnation within the industry itself and ultimately harm the recovery and the economy.